Through organisational transformation and by reshaping business strategy, Harsh Mariwala is giving his company its best shot at growth in a competitive, ever-changing landscape
There is an impeccably landscaped terrace garden outside Harsh Mariwala’s new office, just off Mumbai’s Bandra-Kurla business district. A mere 25 metres away is the clearest view of Mumbai’s gleaming new airport we’ve had yet, where huge Boeing 747s vie with midget Airbus A320s for a sweet spot on the apron. Twelve flights take off and land during the course of our interview. By the time we’re done, we can’t resist the inevitable analogy.
Unquestionably small fry in the early 2000s, Marico, the fast-moving consumer goods (FMCG) company 63-year-old Harsh Mariwala founded in 1990—breaking away from his family-owned Bombay Oil Industries—now has a market cap of over Rs 15,000 crore and international ambitions. It is well on course to becoming a jumbo.
While it is unlikely that the company will reach the size and scale of a Hindustan Unilever or a Nestle India anytime soon, what Mariwala has achieved is creditable.
The last year has been tough for consumer goods companies; a sagging economy has slowed volume growth. For Marico, surging prices for copra (dried coconut kernels, a key ingredient in its Parachute brand of oil) dented profitability. Saffola, its premium cooking oil brand, saw muted growth as consumers shifted to cheaper variants. But in the last quarter, the company surprised the market. There was a revival in volume growth. While net sales were up 2 percent to Rs 4,686 crore, net profit surged 24 percent to Rs 504 crore. The stock, flat over the last year, rallied 12 percent to an all-time high of Rs 241 on May 8, 2014. (It has since corrected to Rs 226 as of May 20.)
But like any ambitious entrepreneur, Mariwala is nowhere close to done. Over the last year, he has gone about quietly executing fundamental changes to the company. A makeover, if you will, that suits Marico’s scale.
International and domestic operations have been combined and Kaya—the skin care clinic that started over a decade ago and had become a drag on profitability—is now a separate company.
This, then, is the story of how Mariwala is putting the building blocks in place for the next phase: Transforming what was a single brand company in 1990 to a diversified consumer products player keen to leverage the heft of its multiple marquee brands.
These changes have touched every facet of the business, including Mariwala’s own role. For one, he has passed on the oversight of the company to a professional manager, something Indian entrepreneurs are typically loath to do (Dilip Shanghvi at Sun Pharma is a notable exception). In April, Mariwala moved into a new role as executive chairman and promoted his 46-year-old chief executive Saugata Gupta (who joined the company in 2004) to managing director. Now that he has shifted away from the day-to-day operations, his main aim is to enhance the effectiveness of the Marico board.
The Board, Redux
“A large part of my variable pay is tied to how effective I am as chairman of the board,” Mariwala says with a smile, adding that he can make as much as an additional Rs 2 crore a year if he does a “good job”. He gets evaluated by fellow board members and better ratings mean more remuneration.
This focus on the role of the board sharpened a couple of years ago when Mariwala was looking for ways to fortify Marico. He admits that it took time and several consultations to kickstart this evolution. His aim: Make the board a source of strength for the company. There could have been an underlying profit-seeking motive as well: The last five years have seen equity markets reward companies which have displayed good corporate governance and Mariwala, who has seen his stock price rise 10 times in the last decade, would have doubtless considered that.
He began by consulting management guru Ram Charan, who has worked with several boards in corporate India (Refer to ‘Analjit Singh’s Future-Proof Strategy’ in the April 18, 2011 issue of Forbes India), for his inputs on shaping Marico’s strategy to increase board effectiveness.
This required an evaluation which threw up several issues, among which was the fact that the board was functioning in a silo. They would meet every quarter and sign off on decisions but Mariwala felt that the members could not have had enough time to adequately research those decisions. To rectify this, prior to these meetings, Marico now practices “board insighting”, where reports on the company’s businesses are sent to members a month in advance. This allows for more informed decision-making.
Another impediment was the formality of the board meetings. The members didn’t know each other too well and only interacted during the meetings. Mariwala gradually set about fixing this. For the past three years, at retreats such as the one in Muscat this year, members spend time discussing how the board can become a competitive advantage for Marico. The members are now clear that the board will no longer get into strategic planning. Instead, it would critique, and provide suggestions on, areas such as succession planning and acquisitions. In addition, board members would also become mentors to company managers and work with them to improve specific skill-sets.
The De-risking Strategy
(This story appears in the 13 June, 2014 issue of Forbes India. To visit our Archives, click here.)